A Low-Volatility, Alternative Bond ETF Strategy | ETF Trends

Now that the Federal Reserve is set on slowly normalizing interest rates as the economy continues to expand, investors may look to alternative investment options such as a dividend growth exchange traded fund that acts more like a steady bond strategy.

Investors may consider the actively managed Reality Shares DIVS ETF (NYSEArca: DIVY), which tries to provide exposure to the growth rate of expected dividends and looks to deliver long-term capital appreciation rather than income and yield through options contracts and dividend swaps.

“DIVY is not a stock alternative, it is a bond alternative,” Eric Ervin, President and CEO of Reality Shares, told ETF Trends in a call.

Through its targeted dividend growth strategy, DIVY may produce low-volatility and low market correlation that helps stabilize an investment portfolio. For instance, the ETF has shown a -0.09 correlation to the Barclays U.S. Aggregate Bond Index, a 0.40 correlation to the HFRX Global Hedge Fund Index and a 0.29 correlation to the S&P 500 Index, reflecting an almost neutral correlation to U.S. bonds and slight positive correlation to U.S. stocks.

“DIVY is designed to perform throughout virtually any market environment,” Ervin said. “Because it was designed to have a lower volatility than the S&P 500 while exhibiting higher returns than bonds, DIVY serves as a potentially effective replacement for part of your bond portfolio allocation.”

Moreover, risk-adverse investors may also like to know that DIVY has shown historically low volatility, exhibiting daily moves of over 1% only 14 days since inception, compared to the 118 days with 1% moves in the S&P 500.